Shortly after nose166 appeared with an article slamming Global Trader (now called GT247, an online platform for trading shares and derivatives), financial planner Peter Calitz of Hout Bay wrote to Noseweek noting that in that same week, Finweek’s Simon Brown was telling his readers how much he likes Global Trader and its parent company Purple Capital.
Calitz copied his letter to the chaps at Finweek.
Noseweek was seriously critical of the way in which Global Trader (GT) generated its huge profits – a story which clients of Global Trader (now known as GT247.com) and investors in Purple Capital Ltd would have found most disturbing.
Finweek editor Marc Ashton replied: “Disclosure upfront, I do hold some shares in Purple Capital and have previously recommended them as a “buy”. I am also a Global Trader client using the “Future Trader” platform and I also trade equities through them. I bought the shares post a number of interviews with Mark Barnes and Charles Savage. This was published in January 2011.
“Mark Barnes [Purple Capital executive chairman] is regarded as being one of the most ethical people in business.”
“Having reviewed the Noseweek article – and without taking sides as I’m still gathering information – I would comment as below:
♦ The Financial Services Board (FSB) investigation was completed and withdrawn following an independent investigation by KPMG;
♦ The auditors for Purple Capital are BDO who are well respected by the industry;
♦ If the FSB had been concerned about systems in place, I would have been surprised to see them allowed to solicit investments for the Emperor Asset Management business in 2012/13.”
At about the same time, another financial planner, Anton Koch of Durban, wrote to Noseweek expressing much the same confusion and concern. He, too, had received a copy of that KPMG report from GT CEO Charles Savage, who claimed that the auditors' report was “clearly defending all accusations made of GT247.com systems”. [Not quite, but more about that anon. - Ed.]
Savage had also sent an “executive response" to the Noseweek article” to his own board of directors. It read:
1. The article has no merit and is based on: (a) the accusations of a disgruntled client who over a period of more than seven years recklessly lost his investments as a result of his own poor trading decisions; (b) a ‘leaked’ report, prepared by an FSB investigator who is no longer in the employ of the FSB and whose findings were found to have no merit when comprehensively reviewed, researched and investigated by his peers.
2. A review of our systems by a big 5 auditor found no merit to any of the disgruntled clients’ claims.
The only possible formal action that we may take is that we will draft a letter to the FSB noting the article and the breach of confidentiality relating to our case. We will ask that they set the record straight by clearing our record publicly.
A few days later, as mooted inSavage's report to his directors, the FSB’s deputy registrar of financial service providers, Gerry Anderson wrote to Noseweek reader Koch: “Most of the facts contained in the [Noseweek] article, which was published without reference to the FSB as the Regulator, are not based on facts. [sic] Global Trader remains a licenced financial services provider trading CFD [Contracts for Difference] instruments as a principle. No regulatory action is in process against the company.”
The first sentence of Anderson’s letter repudiating Noseweek’s report is plain nonsense. Our report was based on an FSB report and contemporaneous email correspondence with the FSB and Global Trader.
His second sentence is disingenuously misleading: true, Global Trader is a licensed financial service provider and, yes, it does trade CFD instruments, but the two statements bear no relation to one another: The law makes no provision for Global Trader (or anyone else) to be licensed by the FSB to trade CFDs.
Anderson’s last sentence, too, is intentionally misleading: there is no regulatory action in process against the company, true, but only because the FSB believes it has no legal jurisdiction to regulate the trade in CFDs – one of the main points made in the Noseweek report.
You need not take Noseweek’s word for that. Just read the email written – only a month earlier – to William Joshua (the IT specialist who lodged a complaint about GT’s alleged rigging of trades) by Wendy Hattingh, the FSB’s Head of Department: FAIS Supervision.
“Dear Mr Joshua, We have provided you with the information necessary to lodge a complaint with the FAIS Ombud. [She clearly believes there is a valid complaint that requires investigation. – Ed.] There is however a jurisdiction problem, the FSB can only Act in terms of its mandate provided in terms of the FAIS Act to regulate advisors and intermediaries. Currently, there is no regulation on the issuers of OTC Derivatives. This position will change in future with the implementation of the Financial Markets Act. We have in this matter directed the financial service provider [Global Trader] to change its disclosure to clients, to ensure clients understand that they are not regulated in terms of the FAIS Act when acting as an issuer of CFDs. Your complaint relates specifically to this part of their business. [A critical bit of information that Savage is careful not to convey to his anxious clients. – Ed.]
“We have also conducted research to establish who all the companies are that operate as CFD issuers and have FAIS licences and the same conditions are being placed on them to ensure transparent disclosure when dealing with clients.
“Please note that the FAIS Compliance Department has, based on your complaint and the FAIS Supervision’s subsequent onsite visit, instituted the condition on the licence after considering the legal implications.”
Which of the two FSB officers, Anderson or Hattingh, is likely to be giving the more truthful FSB response?
William Joshua met Norman Muller, the FSB’s head of capital markets and two members of its FAIS supervision division – Ms Koketso Maloba and Lawrence Horner – on 29 August 2011 to explain his complaints about Global Trader and present his evidence.
The following month, the FSB gave First World Trader (Pty) Ltd, then trading as Global Trader and currently trading as GT247.com (GT), the standard four weeks’ notice of a planned “routine” onsite inspection by its inspectors. In their report the inspectors say they gave GT so much advance warning “in order not to unnecessarily alert FirstWorld Trader of our intentions to investigate the complaint”.
The ruse was, if anything, probably counter-productive because on 5 August, Joshua had already warned GT that he would be reporting his complaint to the Financial Services Board. By Noseweek’s reckoning, only a fool in GT’s position would not have linked the two events.
The FSB’s onsite inspection was conducted on 13 October 2011 by Maloba and Horner. They made a follow-up visit on 18 January 2012. Based on their inspection, they identified the following shortcomings in GT’s systems:
♦ The audit trail that logs all transactions effected on behalf of clients was switched off from 5 August to 12 August 2011. It is recommended that audit trail logs are never switched off.
♦ High volatility in markets resulted in adverse slippage of market orders and stop losses. This slippage is intrinsic to markets. In periods of high market volatility it is recommended that Global Trader should freeze trading on these instruments.
♦ The prices that the investing public are trading on GT’s front-end platform are not indicative of the prices effected on the back-end platform. The clients are worse off. In technical terms the architecture of the price distribution from the back end to the front end is flawed. In times of high market volatility, all price update feeds from Reuters into back end, are not displayed in the front end. The public are trading at out-of-date prices.
♦ The system has a function to manipulate the bid and ask prices. The difference is referred to as the spread and represents the profit margin of Global Trader. The sample revealed manipulation of the spread settings to widen the profit margin for Global Trader.
Several Global Trader /GT247 clients anxiously wrote to the company seeking answers after reading about William Joshua’s experiences in Noseweek. To set their minds at rest, Global Trader “confidentially” sent them a copy of a report it commissioned from KPMG Services in September last year. Several of those clients then proceeded – confidentially – to share the report with Noseweek. Readers will find it on our website. They need only read the extraordinary disclaimer with which KPMG saw fit to conclude their report, to understand why it is best ignored when judging the credibility of Noseweek’s reporting. For that reason alone it is worth quoting the disclaimer in full: “Our report represents our view at the time of the review.
“This report and its results are based on our professional judgement in relation to the above described scope and objectives and as such the procedures carried out to date by KPMG, do not constitute an audit, examination or review in accordance with generally accepted auditing standards and, therefore, KPMG do not express an opinion and/or make any other form of representation regarding the sufficiency of the procedures that KPMG performed.
“This report was not performed by KPMG as registered auditors nor was the engagement performed under any auditing or accounting standards, including International Standards of Assurance Engagements or International Standards of Related Services.
“The report is restricted to management of Purple Capital Limited who have requested the review and such parties that may understand the context of the review since others, unaware of the reasons for the procedures, may misinterpret the results.
“KPMG Services Ltd and/or KPMG Inc, including its directors, employees and agents, and any body or entity controlled by or owned by or associated with KPMG Services Ltd or KPMG Inc (collectively “KPMG”) accepts no liability or responsibility whatsoever, resulting directly or indirectly from the disclosure or referral of this report to any third party and/or the reliance of any third party upon this report or the contents thereof, either in whole or in part.”
The KPMG report is signed by G E Teare, a director of KPMG Services (Pty) Ltd, and dated 10 October 2012.
Recipients of copies of the KPMG report sent to them by GT247.com and Purple Capital should take particular note of the last two paragraphs.
Now for a look at the report itself, KPMG’s brief from their client carefully defined the “objectives and scope” of the “procedures review” they were to perform, “as discussed and agreed with Purple Capital management.”
Two items are worth closer examination, since they could have an indirect bearing on the Noseweek report about William Joshua’s complaint to the Financial Services Board. The first (rephrased here in plain English): KPMG was to verify that Global Trading’s computer system was so designed that the prices shown on a GT client’s screen was based on a current price feed from Reuters or Bloomberg, plus a “spread” (GT’s profit margin) calculated according to a formula approved by its holding company Purple Capital.
The scope of the inquiry was, however, to be limited, inter alia, to prices found on a software program operated by GT called Price Contributor (which raises the question: where else might prices have been found?).
KPMG was also to limit its work “to the software currently installed and in operation at Purple Capital’s offices in Melrose Arch” (they were to note the version number of the software in their report).
Under the heading “Scope Exclusions” the report notes that KPMG was specifically NOT to perform a review of the “general IT controls at Purple Capital’s premises where the systems are maintained” (wherever that was).
And then, for purposes of the above inquiry, KPMG proceed to select ten bits of sample data for analysis, but dating only from 10 October 2011 onwards – well after the transactions Joshua complained about had taken place and by which time GT had already had a month’s notice of the FSB inspectors’ scheduled visit.
(For some peculiar reason their brief from GT/Purple Capital did not include investigating William Joshua’s very specific complaints or other trades that took place on the dates.)
With all those limitations and exclusions in mind, you need to recall that all the transactions that William Joshua complained about took place prior to 6 August 2011, and that the FSB inspectors reported that “on 27 Aug 2011 Global Trader has major upgrade to IT systems that included additional two servers installed and CPU upgrades from 2 cores to 4 cores, RAM from 5GB to 6GB, Java development kit upgraded to latest version JDK 1.7.0 and streamlining of the pricing threads to the most active instruments. This resulted in an extra 600% throughput and capacity.”
The second item in the KPMG report worth a closer look was the instruction to “Confirm that Price Contributor receives an update from Red/Grey Admin and that the price spread (shading) is in line with Purple Capital policies.”
In plain language, it was to check whether GT’s profit markup added to (or subtracted from) the prices fed from Bloombergs to generate the prices ultimately reflected on its customers’ computer screens was “in line with Purple Capital’s policies”.
On this point they report: “Based on the sample of 25, the spread (shading) for each of the selected prices on RDS, after the update from Red/Grey Admin agreed to [matched] the spread approved by Purple Capital.”
All sounds very reassuring (if somewhat colourful), except that it is meaningless to anyone who does not know what Purple Capital’s profit “policy” (the so-called “spread rate”) happens to have been at any given time.
(All we do know from their annual report is that Global Trader was making huge profits.) Global Trader’s “spread” policy, as approved by its parent Purple Capital, is not reflected in KPMG’s report summary.
Now you know why KPMG found it necessary to attach that hefty disclaimer at the end of their report.
Noseweek stands by every detail of its account of William Joshua’s story.
It’s all recorded in emails or on tape. Read the story again., then ask yourself: is GT247 disputing that William Joshua’s deals on 5 August 2011 were wrongly recorded, depriving him of the profits to which he should have been entitled? Is GT247 denying the subsequent telephone and email exchanges they had with him on the subject? Is GT247 denying the strange settlement deal they concluded with him? No.
Are Global Trader, the FSB and KPMG denying the factual findings of the FSB inspectors about the “unfortunate” absence of an audit trail over the critical period? No.
They all carefully ignore the specifics of the inspector’s report: KPMG takes no account of it, and GT and the FSB dismiss it with the allegation (unsubstantiated) that it has been refuted by “his peers” and KPMG; GT CEO Savage claims that the FSB inspector who wrote the report that Noseweek quoted has subsequently been fired. As it happens, the relevant inspector has not been fired – Noseweek checked and found that he has in fact been promoted at the FSB to the rank of manager. (Confirmation can be found on the FSB’s website).
We did not refer our story to the FSB and Global Trader before publication. Now you see why. We already had their genuine responses – to a client and a citizen’s legitimate complaint in hand – and in writing. Why invite the falsehoods that have since been generated?
[Also see letter from "Home-frozen" of Krugersdorp on Letters page in this issue - Ed.]
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